Dell Becomes Billionaire Kingmaker in Broadcom, VMware Deal

(Bloomberg) — Technology entrepreneur Michael Dell once again finds himself at the center of one of his industry’s biggest deals.

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Dell holds a roughly $16.2 billion stake in VMware Inc., meaning he’s likely to have a important say in a potential takeover of the cloud-computing provider by chip maker Broadcom Inc. The two companies are in talks about a transaction, Bloomberg News reported Sunday.

While it’s not known what price Broadcom is willing to pay for VMware, which has a market value of $40 billion, it may have to offer a sizable premium to get the company’s shareholders on board.

VMware’s market capitalization touched $70 billion as recently as October, when Dell’s interest would have been worth some $28 billion. Shares in VMware rose 15% in premarket trading on Monday, which would value the company at about $46 billion.

“Valuation and Michael Dell’s 40% stake could be hurdles to Broadcom’s reported M&A interest in VMware,” said Woo Jin Ho, analyst at Bloomberg Intelligence. “Deal synergies exist, but we believe VMware may seek a valuation prior to the recent market drop.”

Buyers offered an average 34.1% premium in takeovers of software companies announced over the past five years, data compiled by Bloomberg show. Assuming Broadcom offered a similar add-on, that would still only value VMware at around $54 billion and it’s unclear whether that would be enough for Dell.

The 57-year old founder of Dell Technologies Inc. has a net worth of $44.2 billion, according to the Bloomberg Billionaires Index, and isn’t shy about getting into a corporate fight.

He took his eponymous PC maker private in 2013 in a $24.9 billion deal in the face of fierce opposition from renowned activist investor Carl Icahn. Around three years later, he led a $67 billion acquisition of EMC Corp. in what remains one of the biggest tech deals in history.

Then, in 2018, he won a battle to buy out shareholders of stock that tracked Dell’s stake in VMware — created after the EMC takeover — once again defeating opposition from Icahn.

There may also be the chance of rival offers for VMware tempting Dell to hold out. “We believe VMware could attract interest from other suitors pursuing software such as Cisco,” said Jin Ho.